Ergodicity, state prices, and long bond returns

Anthony Tessitore; Nilufer Usmen

doi:10.1111/1467-9965.00046

Ergodicity, state prices, and long bond returns

Anthony Tessitore, Nilufer Usmen

Accounting and Finance

Research output: Contribution to journal › Article › peer-review

Abstract

We present an analysis of price systems in securities markets with infinitely many time periods and infinitely many uncertain states of the world. A key result is that a Markov price system (MPS) has a unique representation in terms of the returns on a known set of bonds. The result implies that securities prices are the discounted value of dividends, where discount factors are the reciprocal of the returns on a long-horizon discount bond.

Original language	English
Pages (from-to)	85-91
Number of pages	7
Journal	Mathematical Finance
Volume	8
Issue number	1
DOIs	https://doi.org/10.1111/1467-9965.00046
State	Published - 1 Jan 1998

Keywords

Ergodicity
Incomplete markets
Long bond returns
Markov process
State prices

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Ergodicity, state prices, and long bond returns

Abstract

Keywords

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